Discussions around decision making often tend to lead to the question “How can I leverage this in my own life?” Unfortunately, behavioral results are not the easiest to apply in the everyday. Sure, knowing about biases is good, especially when you’re making that big decision. But in all fairness, loss aversion or the representativeness heuristic are not usually the biggest worries.
For me, personally, the biggest worries revolve around one question: Is this really worth it? And no, I don’t mean that my mode of being is an existential crisis. What I mean is that I often find myself asking whether this particular activity is worth my investment of time and energy. This meta-level monitoring function is a direct result of the two following concepts.
Opportunity cost
If you’ve studies economics or business, you’ve surely heard of this. If you haven’t – well, you might be missing one important hammer in the toolbox of good thinking. As a concept, opportunity cost is really simple. The opportunity cost of any product, device or activity is what you don’t get instead. For example, if I go to the gym for an hour, I’m giving up the chance to watch an episode of House, for example. Of course, there are all kinds of activities one is giving up for that hour, but ultimately what matters is the best opportunity given up – that’s the opportunity cost.
For me, personally, the biggest worries revolve around one question: Is this really worth it? And no, I don’t mean that my mode of being is an existential crisis. What I mean is that I often find myself asking whether this particular activity is worth my investment of time and energy. This meta-level monitoring function is a direct result of the two following concepts.
Opportunity cost
If you’ve studies economics or business, you’ve surely heard of this. If you haven’t – well, you might be missing one important hammer in the toolbox of good thinking. As a concept, opportunity cost is really simple. The opportunity cost of any product, device or activity is what you don’t get instead. For example, if I go to the gym for an hour, I’m giving up the chance to watch an episode of House, for example. Of course, there are all kinds of activities one is giving up for that hour, but ultimately what matters is the best opportunity given up – that’s the opportunity cost.
You're giving up WHAT to read this?!
Why I consider this to be important is that it’s the ultimate foundation for optimization. When one thinks about activities in terms of opportunity costs, it makes concrete the constraint that we all experience: time. No matter how rich or powerful you are, there’s always going to be that nagging limit of 24 hours a day. So it pays to think about whether something is really worth your precious time.
Marginal benefit
Marginal benefit (or utility) is also quite simple. The marginal benefit of something is the benefit you get by consuming an extra unit of that good. For example, at the moment of writing this, the marginal benefit of a hamburger would be quite high, since at the moment I’m pretty hungry. What’s important is that the marginal benefit changes over time – it’s never constant. One burger is good, and two maybe even better, but add more and more burgers on my desk and I’ll hardly be any happier. In fact, anything over three burgers is a cost to me, since I can’t possibly eat all that – I’ll just have to carry them to the garbage!
Marginal benefit
Marginal benefit (or utility) is also quite simple. The marginal benefit of something is the benefit you get by consuming an extra unit of that good. For example, at the moment of writing this, the marginal benefit of a hamburger would be quite high, since at the moment I’m pretty hungry. What’s important is that the marginal benefit changes over time – it’s never constant. One burger is good, and two maybe even better, but add more and more burgers on my desk and I’ll hardly be any happier. In fact, anything over three burgers is a cost to me, since I can’t possibly eat all that – I’ll just have to carry them to the garbage!
Please, no more burgers!
What makes marginal benefit powerful is the idea that even though I’m enjoying something, it doesn’t mean I should take in all that I can. A night out is great fun, but perhaps after a few pints the marginal benefit often plummets quite fast – you can try this by staying in the bar for extra two hours next time. Just remember to evaluate the situation next morning! ;)
These two concepts help you to ask two things. How much are you getting out of this? What could you get instead? And if the answer is that there’s something more you want instead –well, that’s a wonderful result! At least now you know what you want! :) Or, well, until the marginal benefit decreases, at least…
These two concepts help you to ask two things. How much are you getting out of this? What could you get instead? And if the answer is that there’s something more you want instead –well, that’s a wonderful result! At least now you know what you want! :) Or, well, until the marginal benefit decreases, at least…
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